Google’s New Ad Pitch: Pay When Buyers Act
Google’s New Ad Pitch: Pay When Buyers Act
By Miguel Helft
The company said Tuesday that it would expand testing of a system that allows advertisers to pay only when an ad spurs a consumer to take an action, whether purchasing a product, subscribing to a newsletter or signing up to receive a quote from a mortgage broker or car dealer.
The vast majority of advertisers now pay Google when user click on ads that are displayed alongside its search results or on other Web sites, while some are billed based on how many people view the ads.
“Where optimistic that it will be something that will be very compelling, for advertisers,” said Susan Wojcicki, the vice president of product management of Google. Wojcicki said the system would also give participating Web publishers a wider choice of ad types for their sites.
Under the “cost per action” system, advertisers decide what they are willing to pay for a specific action, like a purchase or a software download. Armed with that information, Web site publishers then choose whether to run a specific ad or group of ads on their sites.
Many advertiser find cost-per-action appealing, as it greatly reduces their risk, since they are not charged for ads that are ineffective.
Ad rates based on click might give way
to rates based on purchases
or other action.
The model has long been used online by “affiliate marketing” companies like ValueClick, which have created networks of hundreds of thousands of Web sites that display small ads for e-commerce sites. The publishers are paid when they refer a user who makes a purchase.
But many other companies are using cost-per-action ads in different ways. They include the search-engine start-up Snap, which display cost-per-action ads next to search results, and Turn, a network that matches advertisers and publishers interested in cost–per-action ads.
“We think it is a model that all the large players in search will be embracing over time,” said Tom McGovern, the chief executive of Snap.
For the time being Google is not putting cost-per-action ads next to search results, limiting them to publishers’ Web sites and essentially creating its own affiliate marketing network. Industry insiders said Google entry into the market was likely to accelerate its growth.
“This is a big market at an early stage,” said Ellen Siminoff, the chief executive of efficient Frontier, a search marketing firm.
Cost-per-action ads have another advantage: they virtually eliminate the problem of click fraud, a scam in which people or computers generate click on ads for the sole purpose of getting a payment.
While the appeal of the cost-per-action model to advertisers is clear, some analysts say publishers may be more reluctant to embrace it, at least for now.
“For publishers, it increases the complexity of their business,” said Mark Mahaney, an analyst with Citigroup. Publishers have limited space for ads and need to maximize the revenue they generate.
A cost-per-click models is risky, since it provides no guarantees that a publisher will receive any payment for a given ad. Mahaney said Google could make the system more effective and appealing if it figured out an automated way to project how much revenue each ad is likely to generate.
Advertising.com, a unit of AOL, uses such a system to determine the right placement for cost-per-action ads on publishers’ sites.
For now, the affiliate marketing unit, the industry’s largest, had sales of $112 million in 2006, while Google’s revenue topped $10 billion.
Google’s test is limited to about 75 advertisers and 75 publishers.
A test last summer had about 30 advertisers and 30 publishers.
Title (article) : Google’s New Ad Pitch: Pay When Buyers Act
By Miguel Helft
From : International Herald Tribune, Thursday, March 22, 2007 (page 20)
Internet address: www.iht.com
